The length of the lease term is undeniably the second most important element to be negotiated in commercial property leasing, immediately behind the rent. However there are cases where the lease negotiation is all about achieving desirable rent and the length of the leasing period is completely overlooked.

There are several reasons that the duration of the term is hugely important. One needs to consider the fact that a lease is secured and valid only for the period of the term. The question of whether the tenant will leave or stay (renew or not) after the expiration of the term or what the future will bring is nothing more than pure speculation.

When talking about the future, it is not only the tenant’s objective that could be reviewed; the landlord’s position could also change. In the case of the urgent need to liquidate the asset, the level of difficulty increases considerably if the lease has insignificant time remaining until the expiration of the term. However it usually goes like this: the shorter the term – the higher the risk – the price goes down.

Short term leases have a damaging impact even in situations where the tenant stays and renews the lease regularly. The accumulation of professional fees associated with frequent lease renewals could have a substantial effect on the overall financial performance of the property.

It has been proven that assets with short term leases have a tendency to have a higher tenant turnover ratio. Besides the previously mentioned increase in leasing costs, higher tenant turnover also means the possibility of higher vacancy rates and increases in the cost of incentives, legal and advertising fees etc.

Due to the enormous work created by short term leases, they could also have a negative impact on the team within the agency. It is usually the property manager’s job to follow up on lease critical dates and make sure that leasing documentation stays current, compliant and executed. Most often, the property manager also has to respond to queries related to the cost of renewals and/or high vacancy rates.

In all fairness, in the challenging leasing environment, with a high degree of uncertainty and lack of business confidence, it is not always easy to achieve long term prosperity.